Summary about Mistake in Trading "Using too much Leverage"

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One of the keys to long-term trading success is to develop an approach to trading that removes as many outside (and often irrelevant) influences as possible from the decision making process. At any given point in time there are at least a million and one reasons available to justify not doing what your trading method tells you to do. What a trader must do in order to succeed—and one of the things that make successful futures trading so difficult—is to ignore all one million and one reasons and do what you are supposed to do anyway. Richard Dennis referred to this as "doing the hard thing."

In one of the most successful experiments ever conducted in the area of futures trading, Richard Dennis and another trader recruited a group of individuals they dubbed the "Turtles" in the late 1970's. What they did was to bring in a group of individuals with no prior experience in trading with the goal of teaching them to be successful traders. The challenge was to find out if individuals are born great traders or whether individuals could be taught to be great traders. The Turtles collectively have enjoyed great success thanks to some of the important lessons they learned along the way. One of the things they were taught was to "do the hard thing." Some examples:

If you get a signal to go short on the next day's open and the market gaps sharply lower the next day, the easiest thing to do is to not make the trade ("it's too late; it's already made a big move"). The hard thing to do—and the right thing to do—is to make the trade anyway.

If you are in a long position using a mental stop and the market in question reaches your stop price but is now extremely oversold and certainly appears to be due to bounce, the easiest thing to do is to wait just a little longer before exiting the trade. The hard thing to do—and the right thing to do—is to cut your loss anyway and move on.

Richard Dennis gave the Turtles a test and one of the questions was "Your system tells you to buy Soybeans. You find out that I (Richard Dennis) am selling short heavily in the Soybean market. What should you do?

a) Buy anyway
b) Sell short
c) Wait for another signal

The easiest thing to do is to put off making the trade. The hard thing to do, and the right thing to do, is, a) buy anyway.

Second guessing a trading decision is the single most simple act in all of futures trading. It is also one of the deadliest habits in all of futures trading. If you find yourself repeatedly second guessing your trading approach and making things up as you go along, it is time to stop trading and develop a new approach.

The moral of the story: A lack of discipline can destroy even the most talented and best prepared trader.